Since decreased cognition can impact retirees’ ability to make sound decisions, the Canadian Union of Public Employees urges its members to discuss financial matters with their families long before exiting the workforce.
“If we wait until we’re in distress, we either make very bad decisions or we don’t make any decisions at all, which can be just as bad,” says Troy Winters, the CUPE’s senior health and safety specialist. “[It’s important to have] those conversations with family, especially if there’s a predisposition [for mental decline]. . . . [Many people] don’t like to talk about money, but that’s not healthy — if nobody’s talking about it, nobody knows what to do or what their choices or decisions would be.”
In addition to reducing retirees’ capacity for financial decision-making, mental-health conditions can also impact cost of living. A November 2023 survey by Sun Life Financial Inc. found among baby boomers with a chronic physical or mental-health condition that requires medication or treatment (49 per cent), just a third (32 per cent) had changed or considered changing their retirement plans to pay for health-related costs.
Among millennials with a chronic physical or mental-health condition requiring medication or treatment (31 per cent), the survey found around half (52 per cent) said they haven’t factored the cost of managing their chronic conditions into their retirement plans and women (61 per cent) were more likely than men (43 per cent) to say they haven’t done so.
Conditions such as dementia and Alzheimer’s disease pose the biggest risks to retirees’ financial wellness, particularly through an increased vulnerability to financial scams, says Greg Hurst, a pension consultant and managing director at Greg Hurst & Associates Ltd.
“There are many stories where an elderly person has fallen victim to a scam and [is tricked into] taking large sums of money out of the bank. . . . In terms of managing your own finances, as you get older, it can become more challenging to do that — and the financial services industry isn’t well set up to provide [adequate] services in that area.”
It’s also important for employees to mentally prepare for a drop in monthly income following retirement, says Carol Chow, chair of the Canadian Institute of Financial Planning’s Retirement Institute. “You have to be prepared way in advance [and] know where the money is coming from because it is a drastic reduction, especially considering company pensions aren’t like they used to be [and you] can’t rely on the government either.”
The role of retiree benefits
While retiree benefits typically focus on providing workers with continued coverage for routine medical and dental care, Hurst sees an opportunity for employers to provide increased mental-health coverage and paramedical support to retired workers. However, a lot of work needs to be done before this expanded coverage becomes a reality.
“Employers have become less and less willing to engage in [retiree benefits] because it creates a future liability obligation on them that they may not be entirely comfortable with. The exceptions you’ll find are in the public sector where those offerings are more common.”
For defined benefit pension plan sponsors in particular, programs like retiree benefits and associations symbolize the ongoing relationship between the plan sponsor and retired members, he adds. “There is generally recognition that, to some extent, retired employees have a financial interest in terms of how the plan operates and certainly the employers do have a fiduciary duty to [retired members].”
Extended coverage for employee assistance programs could also help retirees who are balancing deteriorating mental health and ongoing financial responsibilities, says Winters, adding both employers and governments have a role to play in providing ongoing mental-health support. “I think, [for employers], it would be worth putting it to [retired] employees as, ‘For an extra $5 a month, you can keep engaged with our EAP program.’ [They could even] work out some kind of deal where [all employees receive] a discount because they have a whole group of people staying in the pool.”
Retirees and their families can mitigate any negative impacts of declining mental health through financial products that provide consistent retirement income. Hurst recalls his mother converted her retirement assets into life annuities, a move that provided guaranteed income and removed financial decision-making from the equation. Since annuities must be purchased by age 80 due to income tax rules, it’s important for retirees to discuss this strategy as soon as possible, he notes.
“If you start to decline in your mental health, you’re not going to have the capacity to make good decisions about how your retirement assets are looked after. So that’s where a tool like a life annuity is very useful. The thing is, you have to plan ahead.”
Flipping the script
Conversely, retirement preparedness can have a positive impact on employees’ financial wellness and mental health before they leave the workforce.
A June 2023 survey by the Canadian Public Pension Leadership Council found nearly half (47 per cent) of Canadian employees said they’re very worried about running out of money in retirement and more than a quarter (28 per cent) of all respondents said stress related to retirement planning has had a large impact on their personal health.
Indeed, enhancing employees’ financial and mental wellness is one reason employers opt to offer retirement savings plans, says Sabeen Purewall, director of pension solutions and partnerships at the Colleges of Applied Arts and Technology pension plan.
“[Employers are] recognizing there’s a direct link between retirement planning and employee mental health — 60 per cent of employers currently participating [in the CAAT’s DBplus pension plan] said they joined because they wanted to support their employees’ satisfaction and wellness.”
Blake Wolfe is the interim editor of Benefits Canada and the Canadian Investment Review.